VCM60180 - VCT scheme: general: approval: further share issues and the 70% and 30% tests
ITA/S280
Further share issues before 17 April 2002
There is a relaxation in relation to the 70% qualifying holdings
and 30% eligible shares tests where a VCT has issued further
ordinary shares. This applies where there is an issue of ordinary
shares after an earlier issue of ordinary shares, which took place
whilst a company was approved as a VCT. In these circumstances, the
70% and 30% tests do not apply to the funds raised by the further
issue in accounting periods up to and including any accounting
period ending before three years after the further issue is made
(the ‘disregard period’). For accounting periods after
this the tests apply to all a VCT's investments, whether funded by
earlier issues or by the further issue of ordinary shares.
The ‘disregard period’ will apply to investments
funded either directly or indirectly from further issues. For
example, if a VCT disposes of an investment funded directly from a
further issue and acquires another from the proceeds, then the
later investment is also regarded as being funded from the further
issue. Similarly, investments acquired using income generated by an
investment funded by a further issue will themselves be regarded as
being funded from the further issue.
Where a VCT has provisional approval, it will not be
prevented from having full approval during the disregard period. At
the end of the disregard period the 70% and 30% tests are applied
to all investments whether funded by an earlier or later issue.
If HMRC do not believe that a VCT will meet the 70% and 30%
tests applied to all investments once the disregard period has
ended, then approval may be withdrawn during that period. This is
the case even if the VCT has full approval.
See also
VCM60620 for details of the operation of
the reporting rules for investments funded by further issues.
SI2004/2199 Regulation 14
Further share issues on or after 6 April 2004
Regulation 14 of SI2004/2199 restricts the application of
ITA/S280 where the further share issue takes place on or after 6
April 2004. It restricts the relaxation of the 70% qualifying
holdings condition and the 30% eligible shares condition which is
provided byITA/S280 to cases in which the money raised by the
further share issue is raised for a specified purpose. That purpose
is the acquisition of additional investments that will meet the 70%
and 30% tests.
In particular, the purpose described above is deemed
not to be satisfied in either of the following two
cases:
Any of the money raised by the further share issue is used by
the VCT to purchase any of its own shares and either:
- HMRC consider that the shares purchased are not insignificant in relation to the VCT’s issued ordinary share capital, or
- the purchase is made as a result of a general offer to VCT members.
The further issue of shares is a share issue for new consideration (see VCM69530) that takes place during the course of a merger of two or more VCTs and the amount or value of the money raised by that further share issue that is used for the purpose of the ‘successor company’ purchasing shares in any of the ‘merging companies’ ( VCM69520) exceeds the least of:
- 20% of the amount or value of the money raised by the shares issued for new consideration (see VCM69530),
- 5% of the total value of all amounts subscribed for eligible shares (as defined inITA/S273(1) in the successor company, the other merging company, or other merging companies, as the case may be in issue immediately before the merger; and
- £3,000,000.
Regulation 14 is not regarded as restricting the ability of the
VCT to disburse some of the money raised by the further share issue
on management expenses. The 70% and 30% tests to be applied to the
money raised by the further share issue should be applied to the
net amount of money raised after allowing for such disbursements.
Neither is Regulation 14 regarded as precluding a VCT from
placing the money raised by a further share issue on short-term
investment (for example, by the purchase of gilts) pending
longer-term investment of that money in qualifying holdings.
Where any of the money raised by the further share issue is
used for a purpose other than for the specified purpose (see above)
the provisions of ITA/S280 are treated as
not having applied from the time immediately
before the money was used for that other purpose. In such a case
for the purposes of the 70% and 30% tests the VCT’s
investments are treated as including the money raised by the
further share issue. The 70% and 30% tests therefore need to be
applied at the time immediately before the money was used.
